Medicaid is again being staked out, like the goat in “Jurassic Park,” for the Michigan legislature to prey on. However, unlike the T-rex that spurned easy meat, our legislators will chow down on anything that is not protected by special interests. This time it is estate recovery. Families of limited means and communities where they live have no mighty lobbyists, so they lack defenses against the slavering maws of senate budget raptors. Contact your representative and senator to let them know you oppose Senate Bills 404, 405, and 406.
Medicaid pays nearly half of Michigan’s nursing home costs of approximately $2.5 billion. The federal government covers approximately 60% of the $2.5 billion, so the cost to the state is around $1 billion. This is a tempting target for budget hawks, TEA Partiers, and other conservatives who want to cut back social programs. Estate recovery is a well-loved weapon to aim at the Medicaid long-term care program.
The federal Medicaid program requires states to pursue reimbursement from the estates of persons who die receiving Medicaid for long-term care. However, estate recovery only applies to the estates of single persons; and countable assets are limited to $2,000 in the absence of a spouse who is not in a nursing home. This generally limits the reach of estate recovery to the person’s exempt homestead, so what we are talking about is a program to grab the houses of deceased single Medicaid recipients from their families. A 2004 national survey by the ABA Commission on Law and Aging found that the average recovery per estate was only $8,116 and the median $5,081, so a program that concentrates on seizing the homes of nursing home patients when they die will not produce a huge windfall for Medicaid.
Tara Velting, writing for the right-wing Mackinac Center, asserted that the state could recover 5% of $1.7 billion in Medicaid long-term care costs, or $85 million. TaraLynn T. Velting, “Michigan Dithers on Medicaid Estate Recovery,” August 7, 2006, accessed June 12, 2011. This assumes that Michigan will approach Oregon’s 5.8% effectiveness in estate recovery. There are several fallacies in Tara’s calculation.
First of all, Oregon is an anomaly. The estate recovery programs in the other 44 states and four commonwealths recover less than 2%, on average.
Secondly, she is not factoring in program costs. State Medicaid programs are very tightlipped about program costs and every state or commonwealth operates differently, so these costs are hard guage. Some estate recovery programs are entirely operated by state employees, while other programs rely on private collectors who receive a portion of what they bring in, but based on typical bureaucratic inefficiency and the likelihood that private collectors will get to keep at least 20% of what they recoup it is likely that one third of the gross amounts recovered will be consumed by program and collection costs.
Finally, the state would not get to keep all of the funds collected. A pro rata portion of the recouped Medicaid costs would go to the federal government.
A more realistic assessment of the Michigan’s annual net estate recovery receipts would be 1% of $1 billion, or $10 million, beginning in 2014. In the meanwhile, the state would spend upwards of $5 million to put the program in place. Despite this dismal prognosis, the Snyder Administration decided to pursue estate recovery.
Michigan Department of Community Health is in the process of implementing estate recovery, although the program will exempt homes “of modest value” and the policy provisions include several exemptions for “undue hardship.” Republican Senator Roger Kahn, of Saginaw is not satisfied with DCH’s plan. He has introduced a set of bills that would eliminate all exemptions and exceptions and expand estate recovery to go after the decedent’s dentures and spare nightie. The Kahn plan would certainly not exempt homes of modest value, or real estate owned jointly with other family members.
If the upside of estate recovery is $10 million a year against a $2.5 billion program, what is the downside? What is wrong with estate recovery, and if the DCH plan is misguided, why is the Kahn plan a catastrophe?
1) First and foremost, it will be a disaster in older neighborhoods. Most Medicaid estates will be limited to a modest home in an older neighborhood. If the state will be seizing the home on the Medicaid recipient’s death, families will decide not to maintain it. By the time the nursing-home resident dies, the home will already have deteriorated. Once the state gets the property it will probably be sold at auction to a purchaser who is, or aspires to be, a slum landlord.
2) It may deter some older persons from seeking needed long-term care. The realization that the state will take their home after their death may deter some older persons from seeking necessary care, which could aggravate their health problems. It is an estate tax on modest estates while multimillion dollar estates are passed on tax-free under federal Estate Tax. Estate recovery will take 100% of a Medicaid recipient’s estate.
3) It will result in the loss of family homes and farms. Unless the heirs are able to reimburse the state for the recipient’s Medicaid costs, the home or farm would have to be sold. This is not too disturbing when the decedent had been living alone and the home or farm was only that person’s property, but that is not always the case.
Families of modest means frequently own property together and family members may have been living with, and caring for, the nursing home resident before long-term care became inevitable. A disabled son or daughter may have nowhere to go if the home is sold. A farm may have been inherited by several sons and daughters, who have all been working the farm and investing in it. There is no exception in the Kahn plan to accommodate such common situations.
4) Estate recovery complicates Medicaid and makes it more arbitrary. Good estate planning advice will allow people to maximize what they can protect, while those with the least to protect will have their estates cleaned out.
5) Estate recovery is used to scare seniors and their families into nefarious estate-planning and investment schemes. Trust mills and unscrupulous insurance agents use seminars to sell overpriced and unnecessary annuities, trust kits, and life insurance. Estate recovery gives them added ammunition to bag their unsuspecting prey.
Senator Kahn’s plan is grossly unfair to seniors and their families. Furthermore, it is unnecessary and premature. DCH already has a plan in place. The legislature should wait to see how effective it is. Please contact your legislator to oppose the Kahn plan, today.
John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200
law-business.com ©2011 John B. Payne, Attorney